-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HRSR45hnEtCghlVy9nXnCgujAJZ8ySEZDOSCVVHB1wpBPlsEMpQjebhdj1vsMhj+ c2Dn8Bv020CuGAAPLbwdMw== 0000950134-97-006070.txt : 19970814 0000950134-97-006070.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950134-97-006070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970629 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATERIES INC CENTRAL INDEX KEY: 0000796369 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 731230348 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14968 FILM NUMBER: 97658950 BUSINESS ADDRESS: STREET 1: 3240 W BRITTON RD STE 202 CITY: OKLAHOMA CITY STATE: OK ZIP: 73120 BUSINESS PHONE: 4057553607 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 29, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934 for the Quarterly Period ended June 29, 1997. Commission File Number: 0-14968 ------------------------------------------------------- EATERIES, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 73-1230348 - ---------------------------------------- ------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3240 W. Britton Rd., Ste. 202, Oklahoma City, Oklahoma 73120 - ---------------------------------------- ------------------------------ (Address of principal executive offices) (Zip Code) (405) 755-3607 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]Yes [ ]No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 8, 1997, 3,852,059 common shares, $.002 par value, were outstanding. 2 EATERIES, INC. AND SUBSIDIARIES FORM 10-Q INDEX
Page ---- Part I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets December 29, 1996 and June 29, 1997 (unaudited) . . . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Income (unaudited) Thirteen weeks ended June 30, 1996 and June 29, 1997 . . . . . . . . . . . . . . . . . . . . . . 5 Twenty-six weeks ended June 30, 1996 and June 29, 1997 . . . . . . . . . . . . . . . . . . . . . . 6 Condensed Consolidated Statements of Cash Flows (unaudited) Twenty-six weeks ended June 30, 1996 and June 29, 1997 . . . . . . . . . . . . . . . . . . . . . . 7 Notes to Condensed Consolidated Financial Statements (unaudited). . . . . . . . . . . . . . . . . . . . . 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 11 Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 19 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 19
2 3 PART I FINANCIAL INFORMATION 3 4 ITEM 1. FINANCIAL STATEMENTS. EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, June 29, 1996 1997 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 695,481 $ 742,516 Receivables 801,546 1,038,022 Deferred income taxes 387,000 683,000 Inventories 1,400,262 1,334,807 Other 209,929 413,383 ------------ ------------ Total current assets 3,494,218 4,211,728 ------------ ------------ PROPERTY AND EQUIPMENT 33,024,956 33,775,897 Less landlord finish-out allowances (13,896,522) (14,088,264) Less accumulated depreciation and amortization (5,444,896) (6,082,902) ------------ ------------ Net property and equipment 13,683,538 13,604,731 ------------ ------------ DEFERRED INCOME TAXES 975,000 611,000 OTHER ASSETS, net 555,945 689,964 ------------ ------------ $ 18,708,701 $ 19,117,423 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,359,571 $ 2,863,428 Accrued liabilities 2,562,336 2,421,512 Current portion of long-term obligations 28,308 29,941 ------------ ------------ Total current liabilities 6,950,215 5,314,881 ------------ ------------ OTHER NONCURRENT LIABILITIES 638,017 724,931 ------------ ------------ LONG-TERM OBLIGATIONS, net of current portion 1,470,715 3,120,325 ------------ ------------ COMMITMENTS STOCKHOLDERS' EQUITY: Preferred stock, none issued - - Common stock 8,287 8,411 Additional paid-in capital 9,340,519 9,437,653 Retained earnings 1,666,092 1,918,590 ------------ ------------ 11,014,898 11,364,654 Treasury stock, at cost, 282,761 shares at December 29, 1996 and 298,164 shares at June 29, 1997 (1,365,144) (1,407,368) ------------ ------------ Total stockholders' equity 9,649,754 9,957,286 ------------ ------------ $ 18,708,701 $ 19,117,423 ============ ============
See notes to condensed consolidated financial statements. 4 5 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Thirteen Weeks Ended June 30, June 29, 1996 1997 ------------ ------------ REVENUES: Food and beverage sales $ 13,267,736 $ 13,524,752 Franchise fees and royalties 68,337 63,052 Other income 89,586 121,586 ------------ ------------ 13,425,659 13,709,390 ------------ ------------ COSTS AND EXPENSES: Costs of sales 4,076,377 3,796,738 Operating expenses 7,988,520 8,136,320 Pre-opening costs 154,000 156,000 General and administrative 962,176 1,006,201 Depreciation and amortization 439,889 532,123 Interest expense 38,550 48,318 ------------ ------------ 13,659,512 13,675,700 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (233,853) 33,690 PROVISION (BENEFIT) FOR INCOME TAXES (68,000) 10,000 ------------ ------------ NET INCOME (LOSS) $ (165,853) $ 23,690 ============ ============ WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 3,843,404 3,954,811 ============ ============ NET INCOME (LOSS) PER SHARE $ (0.04) $ 0.01 ============ ============
See notes to condensed consolidated financial statements. 5 6 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Twenty-six Weeks Ended June 30, June 29, 1996 1997 ------------ ------------ REVENUES: Food and beverage sales $ 25,878,858 $ 27,555,990 Franchise fees and royalties 133,475 133,691 Other income 185,042 223,124 ------------ ------------ 26,197,375 27,912,805 ------------ ------------ COSTS AND EXPENSES: Costs of sales 7,917,305 7,878,563 Operating expenses 15,451,281 16,324,694 Pre-opening costs 274,000 174,000 General and administrative 1,796,013 1,988,059 Depreciation and amortization 872,828 1,074,149 Interest expense 67,522 115,842 ------------ ------------ 26,378,949 27,555,307 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (181,574) 357,498 PROVISION (BENEFIT) FOR INCOME TAXES (53,000) 105,000 ------------ ------------ NET INCOME (LOSS) $ (128,574) $ 252,498 ============ ============ WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 3,887,759 4,019,208 ============ ============ NET INCOME (LOSS) PER SHARE $ (0.03) $ 0.06 ============ ============
See notes to condensed consolidated financial statements. 6 7 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Twenty-six Weeks Ended June 30, June 29, 1996 1997 ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: Cash flows from operating activities: Net income (loss) $ (128,574) $ 252,498 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 872,828 1,074,149 Gain on sale of assets (3,153) (6,165) Common stock bonuses 4,366 8,600 Deferred income taxes (53,000) 105,000 (Increase) decrease in: Receivables (244,454) (366,637) Inventories 48,044 65,455 Other (37,424) (203,454) Increase (decrease) in: Accounts payable 612,886 (745,244) Accrued liabilities (661,672) (154,159) Other noncurrent liabilities 1,436 86,912 ----------- ----------- Total adjustments 539,857 (135,543) ----------- ----------- Net cash provided by operating activities 411,283 116,955 ----------- ----------- Cash flows from investing activities: Capital expenditures (4,129,817) (2,014,143) Landlord allowances 1,841,563 1,005,608 Proceeds from sale of property and equipment 33,816 15,063 (Increase) decrease in other assets (9,203) 13,774 ----------- ----------- Net cash used in investing activities (2,263,641) (979,698) ----------- ----------- Cash flows from financing activities: Payments on notes payable to vendor (13,139) - Payments on long-term obligations (12,298) (13,757) Borrowing under note payable - 115,000 Net borrowings under revolving credit agreement 1,800,000 1,550,000 Decrease in bank overdraft included in accounts payable - (750,899) Proceeds from sale of common stock 688 325 Proceeds from exercise of stock options 60,727 26,333 Payment of withholding tax liabilities related to acquisition of treasury stock - (17,224) ----------- ----------- Net cash provided by financing activities 1,835,978 909,778 ----------- ----------- Net increase (decrease) in cash & cash equivalents (16,380) 47,035 Cash and cash equivalents at beginning of period 1,001,954 695,481 ----------- ----------- Cash and cash equivalents at end of period $ 985,574 $ 742,516 =========== ===========
See notes to condensed consolidated financial statements. 7 8 EATERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 - Basis of Preparation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Company changed its fiscal year-end in the first quarter of 1996 to a 52/53 week year ending on the last Sunday in December. As a result of this change, each of the Company's quarters will consist of thirteen weeks. In a 53 week fiscal year, the fourth quarter will include fourteen weeks. Operating results for the thirteen and twenty-six week periods ended June 29, 1997, are not necessarily indicative of the results that may be expected for the year ending December 28, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 29, 1996. Note 2 - Balance Sheet Information Receivables are comprised of the following:
December 29, June 29, 1996 1997 ------------ ---------- Franchisees . . . . . . . . . . . . . . . . . . . $ 53,685 $ 34,467 Insurance refunds . . . . . . . . . . . . . . . . 164,219 427,487 Landlord finish-out allowances. . . . . . . . . . 188,866 50,000 Vendor rebates. . . . . . . . . . . . . . . . . . 226,322 354,254 Other . . . . . . . . . . . . . . . . . . . . . . 168,454 171,814 ---------- ---------- $ 801,546 $1,038,022 ========== ==========
Accrued liabilities are comprised of the following:
December 29, June 29, 1996 1997 ------------ ---------- Compensation . . . . . . . . . . . . . . . . . . $1,388,058 $1,327,324 Taxes, other than income . . . . . . . . . . . . 456,681 396,824 Other . . . . . . . . . . . . . . . . . . . . . 717,597 697,364 ---------- ---------- $2,562,336 $2,421,512 ========== ==========
8 9 Note 3 - Supplemental Cash Flow Information For the twenty-six week periods ended June 30, 1996 and June 29, 1997, the Company had the following non-cash investing and financing activities:
Twenty-six Weeks Ended June 30, June 29, 1996 1997 --------- --------- Net decrease in receivables for landlord finish-out allowances $(137,528) $(138,866) Increase in additional paid-in capital as a result of tax benefits from the exercise of non-qualified stock options 56,000 37,000 Acquisition of treasury stock upon exercise of stock options -- 25,000 Sale of property and equipment in exchange for notes receivable -- 160,000 Asset write-offs related to restaurant closures -- 13,334
Note 4 - Provision for Restaurant Closures and Other Disposals During 1995, the Company approved and began the implementation of a plan to close four underperforming restaurants. In 1996, the Company identified two additional restaurants for closure. As of June 29, 1997, the Company has closed all six of these restaurants and has incurred all costs associated with these closures. Management expects the effect of closing these underperforming stores to result in improved margins and increased profitability in future periods. In the normal course of business, management performs a regular review of the strength of its operating assets. It is management's plan to continue to make such decisions to dispose of assets it considers in the best long-term interest of the Company's shareholders. Note 5 - Stock Put Agreements In April, 1997, the Company entered into stock put agreements with two of its executive officers (who also serve on the Company's Board of Directors). Under the agreements, in the event of the officer's death while an employee of the Company, their respective estate or other legal representative has the right (but not the obligation) to compel the Company to purchase all or part of the common stock owned by or under stock option agreements with the deceased officer or the members of their immediate families (i.e. spouse or children) or controlled by any of them through trusts, partnerships, corporations or other entities on the date of their death. The per share purchase price payable by the Company for common stock purchased under the agreements is the greater of the highest closing stock price during the 60 days preceding the officer's death or two times the net book value per share as of the last day of the calendar month immediately preceding the officer's death. In any event, the total purchase price cannot exceed the proceeds payable to the Company from the key man life insurance policy maintained on the life of the respective officer. 9 10 Note 6 - New Accounting Standards In March 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which requires the calculation of basic and diluted earnings per share (EPS). Basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income available to common stockholders by the sum of the weighted-average number of common shares outstanding for the period plus common stock equivalents. The Statement is effective for periods ending after December 15, 1997, and the Company believes the effect on its EPS will be immaterial. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which is effective for fiscal years beginning after December 15, 1997, and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which is effective for financial statements for periods beginning after December 15, 1997. The Company plans to adopt both of these accounting standards as of the first day of fiscal year 1998. SFAS No. 130 requires that all items required to be recognized under accounting standards as components of comprehensive income, consisting of both net income and those items that bypass the income statement and are reported in a balance within a separate component of stockholders' equity, be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company does not believe that comprehensive income will differ materially from net income. SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company does not anticipate the adoption of this new accounting standard will create additional business segment reporting requirements. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. From time to time, the Company may publish forward-looking statements relating to certain matters including anticipated financial performance, business prospects, the future opening of Company-owned and franchised restaurants, anticipated capital expenditures and other similar matters. All statements other than statements of historical fact contained in this Form 10-Q or in any other report of the Company are forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of that safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. In addition, the Company disclaims any intent or obligation to update those forward-looking statements. INTRODUCTION As of June 29, 1997, the Company owned and operated 42 and franchised eight (Garfield's) casual theme dinnerhouse restaurants. The Company currently has one additional Garfield's in development. As of June 29, 1997, the entire system includes 45 (42 Garfield's, two Pepperoni Grills and one test Casa Ole') Company-owned and eight franchised Garfield's restaurants. PERCENTAGE RESULTS OF OPERATIONS AND RESTAURANT DATA The following table sets forth, for the periods indicated, (i) the percentages that certain items of income and expense bear to total revenues, unless otherwise indicated, and (ii) selected operating data: 11 12
THIRTEEN WEEKS TWENTY-SIX WEEKS ENDED ENDED June 30, June 29, June 30, June 29, 1996 1997 1996 1997 --------- --------- --------- --------- Statements of Income Data: Revenues: Food and beverage sales . . . . . . . 98.8% 98.7% 98.8% 98.7% Franchise fees and royalties . . . . 0.5% 0.4% 0.5% 0.5% Other income . . . . . . . . . . . . 0.7% 0.9% 0.7% 0.8% --------- --------- --------- --------- 100.0% 100.0% 100.0% 100.0% Costs and Expenses: Costs of sales (1) . . . . . . . . . 30.7% 28.1% 30.6% 28.6% Operating expenses(1) . . . . . . . . 60.2% 60.2% 59.7% 59.2% Pre-opening costs (1) . . . . . . . . 1.2% 1.2% 1.1% 0.6% General and administrative . . . . . 7.2% 7.3% 6.9% 7.1% Depreciation and amortization (1) 3.3% 3.9% 3.4% 3.9% Interest expense . . . . . . . . . . 0.3% 0.4% 0.3% 0.4% --------- --------- --------- --------- 101.7% 99.8% 100.7% 98.7% --------- --------- --------- --------- Income (loss) before income taxes . . . . . . . (1.7%) 0.2% (0.7%) 1.3% Provision (benefit) for income taxes . . . . . . (0.5%) 0.1% (0.2%) 0.4% --------- --------- --------- --------- Net income (loss). . . . . . . . . . . . . . . . (1.2%) 0.2% (0.5%) 0.9% ========= ========= ========= ========= Selected Operating Data: (Dollars in thousands) System-wide sales: Company restaurants . . . . . . . . . $ 13,268 $ 13,525 $ 25,879 $ 27,556 Franchise restaurants . . . . . . . . 2,037 1,957 4,070 3,951 --------- --------- --------- --------- Total . . . . . . . . . . . . . . $ 15,305 $ 15,482 $ 29,949 $ 31,507 ========= ========= ========= ========= Number of restaurants (at end of period): Company restaurants . . . . . . . . . 43 45 Franchise restaurants . . . . . . . . 8 8 --------- --------- Total . . . . . . . . . . . . . . 51 53 ========= =========
(1) As a percentage of food and beverage sales. RESULTS OF OPERATIONS For the quarter ended June 29, 1997, the Company recorded net income of $24,000 ($0.01 per share) on revenues of $13,709,000. This compares to net loss of $(166,000) ($(0.04) per share) for the quarter ended June 30, 1996, on revenues of $13,426,000. For the twenty-six weeks ended June 29, 1997, the Company reported net income of $252,000 ($0.06 per share) compared to net loss of $(129,000) ($(0.03) per share) for the twenty-six weeks ended June 30, 1996. REVENUES Company revenues for the thirteen and twenty-six week periods ended June 29, 1997, increased 2% and 7%, respectively, over the revenues reported for the same periods in 1996. The revenue 12 13 increase relates primarily to increased food and beverage sales during the thirteen and twenty-six week periods in 1997. The number of Company restaurants operating at the end of each respective period and the number of operating months during each period were as follows:
Number of Average Monthly Operating Months Sales Per Unit ---------------------- ---------------------- Period Number of Thirteen Twenty-six Thirteen Twenty-six Ended Units Open Weeks Weeks Weeks Weeks - ------------- ---------- -------- ---------- -------- ---------- June 29, 1997 45 131 262 $103,200 $105,200 June 30, 1996 43 127 251 $104,500 $103,100
For the thirteen weeks ended June 29, 1997, average monthly sales per unit decreased $1,300 or 1.2% versus the quarter ended June 30, 1996. Average monthly sales per unit increased by $2,100 or 2.0% for the twenty-six weeks ended June 29, 1997 versus the previous year's results. This year-to-date increase is comprised of a 5.3% increase during the first quarter of 1997 partially offset by the 1.2% decrease in the second quarter. Management believes average monthly sales per unit during the first quarter of 1997 increased due to the following reasons: The Company expanded its electronic advertising campaign into additional markets during the first quarter of 1997. Between July, 1996 and January, 1997, the Company has rolled out three new menu revisions which included selective modest price increases (inline with competitor pricing on comparable food selections) and introduced new higher-priced product selections that were featured in the Company's electronic and newspaper advertising campaigns. As a result of a change in the Company's fiscal year, the Company's 1996 fiscal year ended on December 29, 1996. This moved two of the Company's highest sales volume days (December 30 and 31) into the first quarter of 1997. As a result of the Company's strategy to close underperforming locations, the mix of restaurants open during the first quarter of 1997 represents a higher sales volume mix than was open during the first quarter of 1996. The second quarter decrease is primarily due to a 7.2% decrease in liquor sales. Based on this decrease, a new liquor merchandising plan has been developed and will be implemented during the third and fourth quarters of 1997. 13 14 Franchise fees and continuing royalties were $134,000 and $133,000 in the twenty-six weeks ended June 29, 1996 and June 30, 1996, respectively. At June 29, 1997 and June 30, 1996, there were eight franchise restaurants in service. Other income for the twenty-six weeks ended June 29, 1997 was $223,000 as compared to the previous year's amount of $185,000. COSTS AND EXPENSES The following is a comparison of costs of sales and labor costs (excluding payroll taxes and fringe benefits) as a percentage of food and beverage sales at Company-owned restaurants:
Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------- ---------------------- June 30, June 29, June 30, June 29, 1996 1997 1996 1997 --------- -------- --------- ---------- Costs of sales 30.7% 28.1% 30.6% 28.6% Labor costs 29.2% 28.4% 28.5% 27.4% -------- -------- -------- -------- Total 59.9% 56.5% 59.1% 56.0% ======== ======== ======== ========
The decrease in cost of sales percentages during the thirteen and twenty-six week periods ended June 29, 1997 versus the 1996 comparable periods relates to continued menu development, increased vendor rebates and improved store-level food and beverage cost controls. The decrease in labor costs as a percentage of food and beverage sales during the thirteen and twenty-six week periods ended June 29, 1997, versus the 1996 comparable periods primarily relates to a new scheduling program, a reduction in the average number of managers per store and continued refinement of restaurant operations resulting in reduced kitchen labor costs. Effective September 1, 1997, the Federal minimum wage will increase from $4.75 per hour to $5.15 per hour. Management does not expect this increase to have a significant impact on labor costs. For the thirteen weeks ended June 29, 1997, operating expenses as a percentage of food and beverage sales remained even with the 1996 period at 60.2%. For the twenty-six weeks ended June 29, 1997, operating expense decreased to 59.2% of food and beverage sales versus 59.7% in the 1996 period. This decrease principally relates to lower labor costs (as previously explained) partially offset by an increase in restaurant occupancy costs. Restaurant pre-opening costs, which are expensed as incurred, were $156,000 and $154,000 for the quarters ended June 29, 1997 and June 30, 1996, respectively, and $174,000 and $274,000 for the twenty-six week periods ended June 29, 1997 and June 30, 1996, respectively. Two restaurants were opened in the first half of 1997 while three restaurants were opened in the 1996 period. The Company plans to open one additional restaurant during the second half of 1997 (for a total of three new restaurants for 1997). 14 15 Under the Company's policy of expensing pre-opening costs as incurred, income from operations, on an annual and quarterly basis, could be adversely affected during periods of restaurant development; however, the Company believes that its initial investment in the restaurant pre-opening costs yields a long-term benefit of increased operating income in subsequent periods. During the thirteen and twenty-six week periods ended June 29, 1997 and June 30, 1996, general and administrative costs as a percentage of total revenues increased to 7.3% and 7.1%, respectively, from 7.2% and 6.9%, respectively. These increases primarily relate to an increase in incentive compensation and severance costs. The higher absolute levels of general and administrative costs from 1996 to 1997 are related primarily to additional personnel costs and related costs of operating the expanding restaurant system. The Company anticipates that its costs of supervision and administration of Company and franchise stores will increase at a slower rate than revenue increases during the next few years. Depreciation and amortization expense increased for the first half of 1997 to $1,074,000 (3.9% of food and beverage sales) compared to $873,000 (3.4% of food and beverage sales) in 1996. The increase principally relates to the increase in net assets subject to depreciation and amortization in 1997 versus 1996 because of additional Garfield's and Pepperoni Grill Restaurants opened since July 1, 1996 and the remodeling of older restaurants. During the quarter ended June 29, 1997, interest expense was $48,000 (0.4% of total revenues) versus $39,000 (0.3% of total revenues) for the quarter ended June 30, 1996. For the twenty-six week period ended June 29, 1997, interest expense increased to $116,000 (0.4% of total revenues) from $68,000 (0.3% of total revenues) in the comparable 1996 period. These increases primarily relate to an increase in the average borrowing amount under the Company's revolving credit agreement during 1997 versus 1996. INCOME TAXES The Company's provision for income taxes was $105,000 during the first half of 1997 versus a benefit for income taxes of $(53,000) for the 1996 comparable period. The effective tax rates for the periods ended June 29, 1997 and June 30, 1996, are as follows:
Thirteen Weeks Twenty-Six Weeks ----------------------- ----------------------- 1996 1997 1996 1997 ---------- ---------- ---------- ----------- Effective income tax rates 29.1% 29.7% 29.2% 29.4%
15 16 NET INCOME PER SHARE AMOUNTS Net income per share amounts are computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Per share amounts are based on total outstanding shares plus the assumed exercise of all dilutive stock options and warrants. Common and common equivalent share amounts were 3,954,812 and 3,843,404 in the thirteen weeks ended June 29, 1997 and June 30, 1996, respectively, and 4,019,208 and 3,887,759 in the twenty-six weeks ended June 29, 1997 and June 30, 1996, respectively. Under the treasury stock method of computation, outstanding stock options and warrants represented 56,963 common equivalent shares for the quarter ended June 29, 1997. There were no dilutive common equivalent shares for the quarter ended June 30, 1996, as the Company incurred a net loss for that period. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which requires the calculation of basic and diluted earnings per share (EPS). Basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income available to common stockholders by the sum of the weighted-average number of common shares outstanding for the period plus common stock equivalents. The Statement is effective for periods ending after December 15, 1997, and the Company believes the effect on its EPS will be immaterial. IMPACT OF INFLATION The impact of inflation on the costs of food and beverage products, labor and real estate can affect the Company's operations. Over the past few years, inflation has had a lesser impact on the Company's operations due to the lower rates of inflation in the nation's economy and economic conditions in the Company's market area. Management believes the Company has historically been able to pass on increased costs through certain selected menu price increases and has offset increased costs by increased productivity and purchasing efficiencies, but there can be no assurance that the Company will be able to do so in the future. Management anticipates that the average cost of restaurant real estate leases and construction cost could increase in the future which could affect the Company's ability to expand. In addition, mandated health care or additional increases in the Federal or state minimum wages could significantly increase the Company's costs of doing business. LIQUIDITY AND CAPITAL RESOURCES At June 29, 1997, the Company's working capital ratio was .79 to 1 compared to .50 to 1 at December 29, 1996. The Company's working capital was $(1,103,000) at June 29, 1997 versus 16 17 $(3,456,000) at December 29, 1996. As is customary in the restaurant industry, the Company has operated with negative working capital and has not required large amounts of working capital. Historically, the Company has leased the majority of its restaurant locations and through a strategy of controlled growth, financed its expansion principally from operating cash flow, proceeds from the sale of common stock and utilizing the Company's revolving line of credit. During the twenty-six weeks ended June 29, 1997, the Company had net cash provided by operating activities of $117,000 as compared to net cash provided by operating activities of $411,000 during the comparable 1996 period. The Company plans to open three units (two of which have already been opened as of June 29, 1997) during 1997 in restaurant locations leased in regional malls. The Company believes the cash generated from its operations and borrowing availability under its credit facility (described below), will be sufficient to satisfy the Company's net capital expenditures and working capital requirements during 1997. In August, 1995, the Company entered into an agreement with a bank for a revolving line of credit for $3,000,000. In July, 1996, this line of credit was increased to $5,000,000 and the term was extended by one year to August, 1999. This revolver is unsecured, has a three year term and contains customary financial covenants. This credit facility provides the Company additional borrowing capacity to continue its expansion plans over the next several years. In April, 1997, the Company's Board of Directors authorized the repurchase of up to 200,000 shares of the Company's common stock. In July, 1997, an additional 200,000 shares were authorized for repurchase. As of June 29, 1997, no shares had been repurchased under this plan. Subsequent to June 29, 1997, the Company has repurchased 55,100 shares of common stock for a total purchase price of approximately $160,000. 17 18 PART II OTHER INFORMATION 18 19 Item 4. Submission of Matters to a Vote of Security Holders. (a) The Company's Annual Meeting was held on June 24, 1997. The total number of shares of the Company's common stock, $.002 par value, outstanding at April 25, 1997, the record date for the Annual Meeting, was 3,881,713. (b) Proxies were solicited by the Company's management pursuant to Regulation 14 under the Securities Exchange Act of 1934. There was no solicitation in opposition, and all of management's nominees were elected pursuant to the vote of the stockholders as follows:
Nominee For Against ------- --- ------- James M. Burke 3,465,642 91,208 Philip Friedman 3,465,642 91,208 Thomas F. Golden 3,464,642 92,208 Larry Kordisch 3,453,442 103,408 Edward D. Orza 3,465,342 91,508 Patricia L. Orza 3,465,642 91,508 Vincent F. Orza, Jr. 3,464,342 92,508
(c) Additionally, management proposed amendments to the Company's Restated Articles of Incorporation and Amended and Restated Bylaws (the "proposed amendments") to provide for a board of directors elected for staggered three-year terms. The affirmative vote by the holders of at least a majority of the total outstanding shares of common stock was required to approve the proposed amendments. The proposed amendments did not receive the requisite vote for adoption as 1,776,526 shares (46% of outstanding shares on the record date) of common stock were voted in favor, 663,608 opposed, 14,372 abstained and 1,102,344 shares were not voted. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 11.1 - Computation of Net Income Per Share. Exhibit 27.1 - Financial Data Schedule. (b) A Form 8-K was filed on May 1, 1997, with the Securities and Exchange Commission regarding a change in registrants certifying accountant. No other reports on Form 8-K were filed during the thirteen weeks ended June 29, 1997. 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EATERIES, INC. Registrant Date: August 11, 1997 By: /s/ COREY GABLE ------------------------------------ Corey Gable Vice President/Treasurer Chief Financial and Accounting Officer 20 21 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- Exhibit 11.1 Computation of Net Income Per Share. Exhibit 27.1 Financial Data Schedule.
EX-11.1 2 STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11.1 EATERIES, INC. AND SUBSIDIARIES COMPUTATION OF NET INCOME PER SHARE
1997 QUARTER ENDED March 30 June 29 ----------- ----------- Shares for net income per share computation: Weighted average shares: Common shares outstanding from beginning of period ....... 3,860,630 3,867,330 Common shares issued upon: Exercise of stock options ............................. 2,637 39,852 Common stock bonuses .................................. - 1,879 Treasury shares acquired .................................. - (11,213) ----------- ----------- 3,863,267 3,897,848 Common stock equivalents: Shares issuable upon exercise of options ................. 556,983 133,651 Assumed repurchase of outstanding shares up to 20% limitation (based on average market price for the quarter) .......................................... (336,646) (76,688) ----------- ----------- 220,337 56,963 ----------- ----------- Total shares ........................ 4,083,604 3,954,811 =========== =========== Net income ...................................................... $ 228,808 $ 23,690 =========== =========== Net income per share ............................................ $ 0.06 $ 0.01 =========== ===========
Twenty-Six Weeks Ended June 29, 1997 ---------------- Net income (sum of two quarters above) ........................................ $ 252,498 =========== Weighted average number of common and common equivalent shares (average of two quarters above) ........................ 4,019,208 =========== Net income per share .......................................................... $ 0.06 ===========
2 Exhibit 11.1 EATERIES, INC. AND SUBSIDIARIES COMPUTATION OF NET INCOME (LOSS) PER SHARE
1996 QUARTER ENDED March 31 June 30 ----------- ----------- Shares for net income (loss) per share computation: Weighted average shares: Common shares outstanding from beginning of period ..................... 3,745,095 3,842,258 Common shares issued upon: Exercise of stock options ........................................... 62,996 - Sale of common stock ................................................ - 198 Common stock bonuses ................................................ - 948 ----------- ----------- 3,808,091 3,843,404 Common stock equivalents (unless anti-dilutive): Shares issuable upon exercise of options (dilutive) .................... 761,983 - Assumed repurchase of outstanding shares up to 20% limitation (based on average market price for the quarter) ........................................................... (637,961) - 124,022 - ----------- ----------- Total shares ............... 3,932,113 3,843,404 =========== =========== Net income (loss) ............................................................ $ 37,279 $ (165,853) =========== =========== Net income (loss) per share ................................................... $ 0.01 $ (0.04) =========== ===========
Twenty-six Weeks Ended June 30, 1996 ---------------- Net loss (sum of two quarters above) ........................................................ $ (128,574) =========== Weighted average number of common and common equivalent shares (average of two quarters above) ......................................................... 3,887,759 =========== Net loss per share .......................................................................... $ (0.03) ===========
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 29, 1997 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE TWENTY-SIX WEEKS ENDED JUNE 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH. 1,000 6-MOS DEC-28-1997 DEC-30-1996 JUN-29-1997 743 0 1,038 0 1,335 4,212 19,688 6,083 19,117 5,315 3,120 0 0 8 9,949 19,117 27,556 27,913 7,879 25,277 2,278 0 116 357 105 252 0 0 0 252 0.06 0.06
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